Star’s 9M20 core LATAMI of -RM51.6m (SPLY: RM5.1m) was above our full year estimate of -RM80.1m but below consensus’ -RM39.1m respectively. Print and radio segments chalked some improvement QoQ in tandem with the reopening of the economy with RMCO. Event continued to suffer with zero revenue recorded. Despite the uptick, we remain cautious as the reintroduction of CMCO in most states might dampen the recovery and subsequently tapering adex spends moving forward. Maintain HOLD rating with unchanged TP of RM0.32, based on a P/NTA ratio of 0.35x pegged to FY21 NTA/share.

Above ours but below consensus. Star’s 3Q20 core LATAMI of -RM21.4m brought 9M20’s sum to -RM51.6m, was above our -RM80.1m full year estimate but below consensus’ -RM39.1m respectively. The deviation was mainly due to our conservative top line projection. One-off adjustments include the recognition of compensation income for the late delivery of vacant investment property under construction by Jaks amounting to RM50.5m and other minimal adjustment of RM3m. No dividend was declared.

QoQ. Revenue improved by 53% to RM48.2m. The uptick was thanks to the better performance in print (+45%) and radio segments (>100%) in tandem with the reopening of the economy with the implementation of RMCO. Event however recorded zero revenue for the quarter (vs RM156k in 2Q20) as the most of the online events have been cancelled. Consequently, losses narrowed to -RM21.4m vs - RM26.6m in the previous quarter.

YoY. Top line dropped -39.4% where print (-37%), radio (-17%) and event & exhibition (->100%). This was attributable to the weak economy brought by the Covid-19. All in all, core LATAMI registered a disappointing -RM21.4 vs core PATAMI of RM1.5m in 3Q19.

YTD. With top line reduction by -39% to RM145.5m, 9M20 bottom line suffered a wider loss with -RM51.6m vs RM5.1m in SPLY due to above mentioned reasons.

Outlook. Adex show a slight uptick on the back of economic recovery crawling back to normalcy. We opine that this was due to advertisers ramping up engagement in tandem with the relaxation of MCO. Despite this, with the resurgence of third wave of Covid-19 and the implementation of CMCO in most states, we view that sentiment will continue to be dampen and subsequently tapering adex spend moving forward. Additionally, this also might pose threats in hampering print distribution and radio even further with the homebound population. Management are clinging to the hope for digital contributions to still be the main driver for Star’s growth, with focus on new technologies and improvement in analytics. Nonetheless, we are still cautious on its earnings delivery as the traditional media contribution is falling at a faster rate. We believe the group initiative of cost rationalization with retrenchment exercise slated in 4Q20 (as reported by The Edge news on 16 Sept 2020) will help defend its bottom line.

Forecast. Raising our revenue assumption, our FY20/21/22 loss forecast narrowed marginally to losses of -RM72.6m/-RM34.9m/-RM29.2m from -RM80.1m/-RM35.2m/- RM30.0 previously.

Maintain HOLD, TP: RM0.32 pegged to P/NTA multiple of 0.35x (roughly -1.7SD below 3-year mean), pegged to FY21 NTA/share. The outlook for Star remains bleak due to the Covid-19 pandemic coupled with the bumpy road ahead to materialize their digital revenue in this challenging economic outlook. Nonetheless, share price is already below its NCPS of RM0.49. Maintain HOLD with unchanged TP of RM0.32.

Source: Hong Leong Investment Bank Research - 13 Nov 2020